Australia-United States Free Trade Agreement - Guide to the Agreement
10. Cross-Border Trade in Services
1. Purpose and structure
The Cross-Border Trade in Services (CBTS) Chapter provides service suppliers with an open and non-discriminatory environment for cross-border trade in services. It ensures that service suppliers from each Party receive national treatment or most-favoured-nation treatment (whichever is better) from the other Party. It prohibits a range of market access restrictions on service suppliers, as well as restrictions on transfers.
Any company or national in either Party interested in supplying a service to a consumer in (or from) the other Party can benefit from the Chapter.
2. What is cross-border trade in services?
The Chapter is concerned with measures adopted or maintained by a Party (at all levels of government) that affect cross-border trade in services by service suppliers of the other Party (e.g. measures affecting the production, distribution, marketing, sale or delivery of a service).
The Chapter defines "cross-border trade in services" as the supply of a service:
- from the territory of one Party to the territory of the other Party;
- in the territory of one Party by a person from that Party to a person from the other Party; or
- by a natural person of a Party in the territory of the other Party.
The Chapter defines a "service supplier" as a national or enterprise of one Party who seeks to supply or supplies a service. Under the FTA, a "national" includes permanent residents as well as citizens. In the CBTS Chapter, an "enterprise" of a Party includes branches located in its territory, as well as incorporated companies and other entities constituted or organized under its laws.
In general, the Chapter does not deal with the supply of a service through a commercial presence, i.e. through the service supplier establishing a branch or a subsidiary in the territory of the other country to supply the service. This form of "trade in services" is subject to the general protections provided to investment by the Investment Chapter (Chapter 11). However, Article 10.1.3 extends the obligations of the articles in the CBTS Chapter on Market Access, Domestic Regulation and Transparency in Development and Application of Regulations to measures by a Party that affect the supply of a service in the territory of a Party by a covered investment of the other Party (i.e. the supply of a service by commercial presence).
The Chapter does not apply to financial services, as these are covered by the Chapter on Financial Services (Chapter 13). However, any financial services that are subject to the Investment Chapter rather than the Financial Services Chapter, do benefit from the Article 10.1.3 extension of certain CBTS articles to the supply of a service through a covered investment.
The Chapter does not apply to:
- government procurement;
- air services (except for aircraft repair and maintenance services during which an aircraft is withdrawn from air service, and certain specialty air services);
- subsidies or grants provided by a Party, including government-supported loans, guarantees, and insurance; and
- services supplied in the exercise of governmental authority, being services supplied neither on a commercial basis, nor in competition with one or more service suppliers.
The Chapter does not oblige either Party to do anything in relation to natural persons of the other Party who are:
- seeking access to its employment market; or
- employed on a permanent basis in its territory (Article 10.1.5).
The Chapter does not confer any rights on such natural persons in relation to such access or employment (Article 10.1.5).
3. Core obligations
The Chapter requires each Party to accord to services and service suppliers of the other Party national treatment (Article 10.2) and most-favoured-nation treatment (Article 10.3).
National treatment means treatment no less favourable than a Party accords, in like circumstances, to its own services and service suppliers.
Most-favoured-nation (MFN) treatment means treatment no less favourable than a Party accords, in like circumstances, to service suppliers of any non-Party.
Article 10.4 prohibits each Party from placing limits, either on the basis of a regional subdivision or on the basis of its entire territory, on:
- the number of service suppliers;
- the value of service transactions or assets;
- the number of service operations or the quantity of services output; or
- the number of natural persons that may be employed in a particular service sector or that a service supplier may employ.
It also prohibits each Party from restricting the type of legal entity or joint venture that a service supplier can use to supply a service.
Article 10.5 prohibits each Party from requiring, as a condition for the cross-border supply of a service, that a service supplier of the other Party establish or maintain a representative office or any form enterprise in its territory, or that it be resident in its territory.
4. Non-conforming measures
Article 10.6 allows the Parties to maintain or adopt certain measures that are not consistent with the provisions of the obligations on National Treatment, MFN Treatment, Market Access, and Local Presence (i.e. "non-conforming measures"). These non-conforming measures must be identified in individual Schedules for each Party that are contained in two Annexes to the Agreement:
- Annex I can be used by a Party to reserve the right to maintain existing non-conforming measures that are specifically identified in its Schedule to that Annex. These measures cannot be made more restrictive (i.e. less consistent with the obligations of the Chapter). Furthermore, Annex I measures are subject to a "ratchet" mechanism, which means that if a Party liberalizes such a measure, i.e. makes it less inconsistent with an obligation, then it cannot subsequently make it more restrictive. In other words, the ratchet mechanism means that the liberalized measure becomes "bound" as part of the Agreement's treaty commitments.
- Annex II can be used by a Party to reserve the right to maintain existing non-conforming measures, make these measures more restrictive, and adopt new non-conforming measures for sectors, sub-sectors or activities identified in its Schedule to that Annex.
The Schedules to Annex I and II represented a carefully negotiated balance of commitments between the Parties. An example of entries the Parties have included in their Schedules is the approach Australia has taken to the audiovisual and broadcasting sector. This is described in the box below.
The outcome of the negotiations on audiovisual and broadcasting services preserves Australia's existing local content requirements and other measures and ensures Australia's right to intervene in response to new media developments, subject to a number of commitments on the degree or level of any new or additional local content requirements.
It does this through three reservations in Australia's schedules to Annex I and Annex II.
Note: nothing in the Agreement affects the ability of either Party to provide public services, and subsidies and grants are explicitly excluded from the scope of the Chapter. Therefore, reservations are not required in Australia's schedules in relation to publicly provided cultural activities, such as the public broadcasters (ABC and SBS), public libraries or archives, or in relation to Government funding available to Australian artists, writers and performers.
5. Other obligations
Article 10.7.1 provides that, where a Party requires authorization for the supply of a service, its competent authorities must, within a reasonable period of time after the submission of a properly completed application, inform the applicant of the decision on the application. If the applicant asks, the Party must give a prompt update as to how the application is progressing. However, these obligations do not apply to any authorisation requirements in the sectors, sub-sectors or activities listed in Annex II.
Article 10.7.2 requires that a Party do its best to make sure that authorisation requirements do not create unnecessary barriers to trade in services. It must try to make sure that these requirements are:
- based on objective and transparent criteria (e.g. the ability to supply the service);
- not more onerous than is needed to ensure that a quality service is provided; and
- in the case of licensing procedures, not in themselves a restriction on the supply of the service.
Australia and the United States also have obligations on trade in services under the World Trade Organization's General Agreement on Trade in Services (GATS). This has its own obligations in respect of domestic regulation, and it requires the future development of new obligations in respect of authorisation requirements for the supply of services. Under Article 10.7.3, if any such new obligations enter into effect (either through the GATS or through other international negotiations that Australia and the United States participate in) then the Article will be amended, as appropriate, so that it reflects these results.
Transparency in Development and Application of Regulations
Article 10.8.1 requires that each Party be in a position to respond to inquiries from interested persons about the regulations it imposes in the areas covered by the Chapter.
The separate Chapter on Transparency requires that, wherever possible, each Party must give advance notice of any proposed new law, regulation, procedure or administrative ruling on a matter covered by the Agreement and that it must let interested persons (and the other Party) make comments on the proposal. If the proposal is in relation to a matter covered by the CBTS Chapter, and the Party does not give this advance notice or opportunity for comment, then, wherever possible, it must explain why it could not do so.
Article 10.8.3 requires that each time a Party adopts a final regulation in relation to a matter covered by the Chapter, it must, wherever possible, give a written response to any comments it receives on the proposed regulation.
Article 10.8.4 requires that each Party must, wherever possible, provide notice of the requirements of final regulations before they come into effect.
Countries may require, e.g. for professional services suppliers, the authorization, licensing or certification of services suppliers. As these requirements may differ between countries, each country, or its relevant professional bodies, may have certain rules about recognising the education or experience obtained, requirements met, or licences or certifications granted in foreign countries. Sometimes this recognition is pursuant to formal agreements with the foreign country concerned or a country might accord such recognition unilaterally. Article 10.9.1 makes it clear that the Chapter does not prevent a Party from according such recognition to persons from foreign countries - but under Article 10.9.4 it must not do so in a way that would amount to:
- a means of discrimination between countries in the application of its requirements; or
- a disguised restriction on trade in services.
If a Party accords such recognition to persons from a non-Party then the MFN Treatment obligation does not require that it accord such recognition to persons from the other Party (Article 10.9.2). However, it must give the other Party the chance to show that it should also be accorded such recognition (Article 10.9.3).
Article 10.9.5 and Annex 10-A to the Chapter provide a formal mechanism by which the two Parties can encourage such recognition in respect of their professional service suppliers. Annex 10-A also provides for the establishment of a Professional Services Working Group that must report to the Parties, within two years of the entry into force of the Agreement, including with any recommendations for initiatives to promote mutual recognition of standards and criteria. The Working Group has a broad mandate to look at issues relevant to the provision of professional services, but with a particular focus on exploring ways to foster the development of mutual recognition arrangements among the relevant professional bodies, and on the scope to develop model procedures for the licensing and certification of professional services suppliers.
Transfers and Payments
Articles 10.10.1 and 10.10.2 require that each Party allow all transfers and payments relating to the cross-border supply of services to be made freely and without delay into and out of its territory, and allow such transfers and payments to be made in a freely usable currency (i.e. currently the United States dollar, the Japanese Yen, the Euro, and the British Pound) at the prevailing market rate of exchange.
A Party can still prevent or delay such transfers or payments through the equitable, non-discriminatory, and good faith application of laws such as on bankruptcy.
Express Delivery Services
Article 10.12.1 defines "express delivery services" to mean the collection, transport and delivery of documents, printed matter, parcels and other goods on an expedited basis while tracking and maintaining control of the items throughout the supply of the service. Footnote 10-2 to the Chapter makes it clear that "express delivery services" do not include services reserved exclusively for Australia Post.
If a Party thinks that the other Party is not maintaining the level of market openness for express delivery services that existed when the FTA was signed then the Parties must consult and the other Party, wherever possible, must provide information in response to inquiries about the level of access and related matters (Article 10.12.2).
Article 10.12.3 contains a confirmation that each Party intends to prevent revenues derived from its monopoly postal services from being directed to its own (or any other) supplier's express delivery service business in a way that is inconsistent with that Party's law and practices in relation to the monopoly supply of postal services.
6. Denial of Benefits
Article 10.11 provides that a Party may deny the benefits of the CBTS Chapter to a service supplier of the other Party if it is an enterprise owned or controlled by persons of a non-Party, and the denying Party:
- does not have diplomatic relations with the non-Party; or
- has in place sanctions with respect to the non-Party or a person of the non-Party that prohibit transactions with the enterprise.
A Party may also deny the benefits of the CBTS Chapter to a service supplier of the other Party that is an enterprise that:
- has no substantial business activities in the territory of the other Party; and
- is owned or controlled by persons of a non-Party or of the denying Party.
March 6, 2004